An Argument For The Owners

Posted on Jul 15, 2011

Aporia – a difficulty encountered in establishing the theoretical truth of a proposition, created by the presence of evidence both for and against it.

Presented below is an amalgamation of factual and editorial evidence comprising a (hopefully) compelling and thought provoking argument as to why the owners are justified in requesting broad sweeping changes to the expired collective bargaining agreement and acted in the best interest of the league by locking out the players after the union’s intractable stance to necessary changes.

The opinions expressed below do not necessarily represent the beliefs of the author, but are intended to express the sentiments of one side of a debate. The intent is not to provide solutions to the current calamity, but rather provide information that will help resolve potential ambivalence of readers as to which side deserves more criticism relevant to the current imbroglio. Consider it an exercise in assigning blame and picking sides.

If the piece is well received, the dissenting position of the players may be presented in a future offering. Please feel free to offer comments, opinions, questions, compliments (I’m probably reaching here), or even vituperations as deemed appropriate.

Small Market Struggles

There is a faction of teams in the NBA that empathize far too well with the Kansas City Royals. Small markets in the NBA are being left by the wayside. The Sacramento Kings garner approximately $700,000 in ticket sales per home game compared to over $2,000,000 for the Lakers. That’s over $53 million dollars in extra revenue for the Lakers before a single parking pass has been issued or beer has been poured. The money from local tv contracts for major markets like New York, LA, and Chicago dwarfs the earning capacity of the downtrodden and this disquieting portent seems destined to become even more exaggerated in the future unless wholesale changes are implemented. There is an expansive chasm between the profitable and the penurious that is growing more and more difficult to span with the mere use of spunk or pluck.

The owners have suggested that modifications be made to the current revenue sharing structure as one method of mitigating this disparity. Sharing negative revenue, however, doesn’t seem to be a rational solution. Equal division of a league wide loss is neither a pragmatic nor satisfactory approach. The owners are simply not receiving a large enough share of the Basketball Related Income (BRI). In fact, the current revenue split in the NBA makes it the most lopsided in favor of the players in any of the major sports. In order for a modified revenue sharing plan to be effective, the owners need a drastic increase to their share of BRI. A profitable league has a much greater chance of successfully implementing a revenue sharing structure that increases the chances of small market competition.

A hard salary cap is also being sought by the owners as another method of reeling in exorbitant spending by teams that are more financially well-endowed. The current luxury tax system benefits the teams which can afford to spend to excess (hence the use of the word luxury). By establishing a rigid salary floor and ceiling, a more competitive structure can be established by leveling the financial playing field.

League Losses

They are real and they are significant. 23 teams lost money last year and the total league losses for the 2010-11season are estimated at $300 million dollars. Over the last six years the league has lost a total of $1.845 billion dollars. That’s an average of about $60 million dollars per team over that period. Of course a few teams are actually making money, so the losses of some teams will be much greater than this number. Why should owners be forced to operate at a loss and pillage their personal wealth to finance an operation that nets their employees millions a year? Even the most contrary and optimistic earning reports seem to suggest that the NBA is far less profitable for owners than either the MLB or NFL.

A Forbes report that suggested that the league may have actually made $183 million dollars last season (which has since been refuted) is actually damning of the players it was originally used to support. This put the NBA owners profit at 4.8% compared to 8.1% for MLB and 13.7% for the NFL. Even using this information (which once again is in question), the NFL owners also locked out their players despite clearing nearly three times the profit margin of NBA owners, and remember that’s a percentage of a much bigger pie.

Dividing the $183 million dollars between 30 teams (which isn’t actually done) would result in a profit of only $6 million dollars per team. By this measure the average yearly profit of an NBA franchise would only slightly surpass the average yearly salary of a player. Isn’t a team entitled to earn more than an average player does?

So the rosy scenario which depicts the NBA owners as doom merchants who are doctoring their books and misleading the public shows that an average NBA franchise would still make less than Josh Childress even if the revenue sharing was adjusted without a change in BRI. The more realistic scenario is that the NBA is headed down a road of financial insolvency and bankruptcy without an extensive overhaul.

Competitive Balance

Since 1980 (32 years) MLB has had 19 different teams win the World Series. The NFL has seen 15 different cities celebrate Super Bowl victories. The NBA’s version of sharing the wealth has resulted in only 9 different franchises winning the Larry O’Brien trophy over this span. This lack of diversity seems troubling. It speaks to a broader problem that suggests an imbalance in competitive equilibrium. This disturbing trend is at the core of why a countervail must be implemented to level the playing field for the competitors and restore faith to the fanbases in cities that have been placed on the outside looking in by the recent bargaining agreements.

The misguided display of narcissism by Lebron James last offseason revealed another troubling foretoken for the league. The owners would like to have more incentives and/or restrictions put in place that give small market teams more leverage in keeping their star players. It may grow more and more difficult to sell a product to small market cities that continue to see their players gravitate towards the bright lights and big cities. A trend that has a handful of markets divvying up the star players while the remaining competitors are left to patch together lineups with the scraps left over is probably not acceptable to the majority of the NBA franchises and their fans.

Compensation

The players in the NBA are the best compensated of any professional sport. The average MLB salary is $3.3 million dollars per year. The average NFL salary is $1.9 million dollars per year (the median salary is only $770,000). The average NBA player makes over $5.3 million dollars per year. Since the average career of a football player lasts only 3.5 years, the career earnings for an average football player are just slightly higher than one year’s salary for an average NBA player. This is more than slightly catawampus.

When Joe Johnson’s current contract runs its course in 2016, he will have earned over $198 million dollars from his combined contracts in the NBA. The current system in place has made Joe Johnson, a borderline all-star, $200 million dollars. To put this into perspective, or more aptly to emphasize the systemic insanity of the current situation, Tom Brady’s current contract will put him at just under $140 million dollars in career earnings through the 2014 season in which he will turn 37 years old. The derailed NBA system has made it possible for Joe Johnson to dwarf the earnings of an NFL superstar.

The parameters of the deal the owners are offering to the players would keep them as the highest paid in any of the major sports. While the owners are asking the players to take a pay cut, it seems disjointed for the players to protest an injustice when they would remain the richest group of athletes on the face of the planet.

In Summation

This is not about owners trying to land a coup de gras against the players. This is not about acquisitive owners posturing to line their collective pockets with sweaty heaps of tv money. This is about ensuring the viability and survival of the league moving forward. This is about creating a competitive environment in the league that fosters equal opportunity for every team to succeed based on the merits of their operations rather than the size of their market. There is good reason for the truculent stance the owners have taken. Desperate times call for desperate measures. Real changes are needed to prevent the implosion of the league based on a set of operating procedures that require fundamental and wholesale changes. Hopefully the players intransigency will not compromise the upcoming season and alienate both parties from the group of people this is all supposed to be about in the first place – the fans.